The Income Tax Bill 2025 marks a major overhaul of India’s six-decade-old taxation law. It replaces the outdated Income Tax Act, 1961 with a simpler, modern structure designed to benefit taxpayers and streamline processes.
Introducing the Income-Tax Bill, 2025 (No. 2), FM Sitharaman stated that the bill aims to combine and change the law regarding income tax. It will replace the Income Tax Act of 1961.
The government has officially withdrawn the previous draft of the Income Tax Bill 2025, which was introduced in Parliament on August 8. This is the same bill that was presented during the Budget session in February and was quickly sent to the Select Committee.
“Almost all recommendations from the Select Committee have been accepted by the government. Additionally, suggestions have come from stakeholders regarding changes that would make the proposed legal meaning clearer,” said the bill’s statement of objects and reasons.
Income Tax Bill 2025 : The Big Picture
-
From over 800 to 536 sections: The bill slashes redundant language and cuts chapters, making it more reader-friendly.
-
One unified “Tax Year”: Instead of juggling “Assessment Year” and “Previous Year,” the bill introduces a single “Tax Year” concept, reducing confusion.
-
Digital-first, faceless assessments: Tax compliance becomes more transparent and efficient, with reduced human interaction.
More Relief for Taxpayers
-
No income tax up to ₹12 lakh, and with the enhanced standard deduction of ₹75,000, effective no-tax income is up to ₹12.75 lakh under the new tax regime.
-
Tax slabs updated: The revised structure offers progressive, lower rates for different income brackets.
Fairer Rules & Clarity
-
Refunds even for late returns: Fixed the earlier ambiguity—taxpayers can claim refunds even if filing returns past the deadline.
-
Pension & house property clarity: Streamlined deduction rules—commuted pension gets an explicit exemption, and house property standard deduction is now more transparent (applied after municipal tax).
-
Simplified charitable contribution rules: Anonymous donation limits eased; NPOs can now claim 5% of total donations, not just anonymous ones.
When Does It Start?
-
Introduced in Lok Sabha on 11 August 2025, passed by Rajya Sabha on 12 August 2025. It’s slated to become law once it receives Presidential assent.
-
Comes into force from 1 April 2026, affecting the FY 2026–27 taxation.